Tom asked what steps had been taken to expand their customer base. Ray replied that Aguamaint had acquired a 20 percent interest in the small dealership, PVCO, which carried their line of pumps and valves. Ray also had been appointed a member of PVCO's board. This new investment would give Aguamaint the opportunity to observe and learn the equipment supply business first hand. If things went well, Aguamaint would later consider acquiring the remaining interest in the dealership.

Ray indicated that Aguamaint had paid more than book value for the stock because PVCO owned an important patent that had been developed internally that was not included in their financial statements. The patent has a remaining life of 4 years. You also learned later from Linda Durkee that the equity method of accounting was not allowed for tax purposes. For tax purposes, such investments were recorded at cost, and the only income reported came from dividends. Linda Durkee also revealed that when equity ownership equals 20 percent or more, the dividends received deduction is 65 percent rather than 50 percent.

What would be the following adjustments related to this information? The company recorded the following information using the cost approach but we have to adjust and record it to the equity method. The company only recorded two entries (which are shown below).

Do you have preliminary 20x4 financials on the PVCO investment? Also do you have financials at the date of acquisition? Specifically, because you have 20% interest, we need to know the total assets and total liabilities on the purchase date and net income for the part of the year that you owned the shares of stock. We also need to know how much they paid out in dividends.

Financial data for PVCO are as follows:

	May 31,20x4	December 31, 20x44
Assets	$ 3,802,900	$ 4,382,520
Liabilities	2,402,300	2,866,640
Net worth	$ 1,400,600	$ 1,515,880

Income, 6/1/x4 to 12/31/x4 $ 129,780

Dividends paid 20x4 (we received 20%) 14,500

Increase in net worth, last seven months of 20x4 115,280

At beginning of year company record purchase of PVCO investment:

Equity security	306,000
Cash		306,000

At year end company recorded receipt of PVCO dividends:

Cash	2,900
Investment income		2,900

What would the journal entry be for reclassify the the dividends received from PVCO?

What would the journal entry be for accruing 20% of the investment's net income?

Journal entry for amortizing the excess based on the book value and decrease on investment?